Medicare spending is not out of control

It’s the season of holiday cocktail parties, demanding intelligent chit-chat over Chardonnay. In such data-free environments it is always safe to say, “Medicare spending is out of control!” Wise heads will nod, because it is a credo with wide currency.

After all, as I explained in my previous post, traditional Medicare, which still attracts about 75 percent of all Medicare beneficiaries, affords its enrollees free choice of providers and therapy. In the jargon of health-policy wonks, it is “unmanaged.” Thus, it would not be surprising if unmanaged Medicare spending were, indeed, out of control.

But some caution is in order. A really wise guy in the crowd, one familiar with relevant data, might challenge you with: “Oh, really? In what sense is Medicare spending out of control?”

These data, most of which have been published by the Office of the Actuary, Centers of Medicare and Medicaid Services, of the Department of Health and Human Services (see Table 16), show that in most periods Medicare spending per Medicare beneficiary has risen more slowly than per-capita spending under private health insurance.

The exceptions are the period 1993-97, when private managed-care plans appeared to be able to hold down their outlays on health care better than did Medicare, and 2002-7, because there was a jump in spending as Medicare began, in 2006, to cover prescription drugs under the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

So anyone claiming that “Medicare spending is out of control” can fairly be asked to explain on what data that assertion is based…

With very few exceptions, Medicare pays prices to providers of health care below those paid by private insurers, which individually negotiate prices with each provider…

Critics of Medicare — notably private health insurers — contend that the higher prices for health care paid by private insurers can be explained by a “cost shift” from government, notably Medicare, to private payers. This view reflects the idea that the providers of health care are to be “reimbursed” for whatever costs they incur in treating patients, rather than budgeting backward from whatever revenue they are “paid,” like other sellers (e.g., hotels or airlines), which can charge different prices to different customers for the same thing.

The cost-shift hypothesis appears to have widespread, intuitive appeal, especially among employers and their agents, private insurers. Economists, this one included, do not find it persuasive, as can be seen in this review of the economics literature on the cost-shift hypothesis and this summary. Economists believe that what is denounced as “cost shifting” in health care is mainly just good old-fashioned, profit-maximizing price discrimination…

Most of the anti-Medicare discussion is based on lies. Most of it is crammed, distorted into a fit determined by class-based ideology that says working people deserve nothing more than the lowest possible wage for their labor – even as they create the wealth of a nation. Programs funded by taxpayers still must be diminished, cut to the minimum, or the politicians who bow and scrape before the wealthiest class in this land will be shamed.

2 comments

I will say that is my understanding that the three biggest issues in recent years have been:

1)the ageing of the american population, coupled with the increased ability to diagnose many health issues (and the costs of treating such). Heck- my father was a veterinarian- and I have always had dogs and I have been blown away over the past decade or so on the advances in treatment possibilities due to old generation medical equipment trickling down…as well as it’s cost. (largely coinciding with the rise of animal health insurance- something unheard of when I was young). Even more so for humans…

2)the so called medicare trust fund- and the hits it has taken with global economic collapse

3)Part D. The prescription drug coverage. A highly complicated issue. Ranging from patent law, to privately held companies, to the failure of the FDA to reel in questionable medicines (and the power of drug companies to submit, and get approval for a drug with just a few studies- regardless of whether these studies are the minority of the studues showing sucess), to the to the increase of advertising (and removal of restrictions on such)…

But I will share this recent story- from my wife who is a doctor. She recently had a patient calling that she couldn’t get a common, generic antibiotic. So my wife called the pharmacy, then another, then another…. And was finally told that it was unavailable, anywhere, because the generic producer had been bought up by a big pharma company. The pharmacist then went on to name numerous other generic drugs no longer available because many generic producers were being bught up by a a few main pharmaceutical companies. Increasing costs to individuals. To insurance companies, and to the governemnt by 10X, 20X, even 50X or more.